PEOPLE

Uniswap v3 makes a splash before its release? Community continues to criticize outdated elimination protocols, researcher says alpha is obsolete.

share
Uniswap v3 makes a splash before its release? Community continues to criticize outdated elimination protocols, researcher says alpha is obsolete.

Despite not yet being live, the brand new customizable liquidity mechanism of Uniswap v3 has amazed the community, with the Ethereum community eagerly anticipating its launch. It has even started to "name names" of DeFi protocols that will soon be replaced by V3, including Curve and Alpha Homora.

Deep DeFi player D3,3genomics raised the question on Twitter: "V3 concentrated liquidity + Alpha Homora leverage liquidity mining = ??"

This question caught the interest of Deribit researcher Hasu, with Uniswap founder Hayden Adams also sharing his thoughts in the tweet thread.

Advertisement - Please scroll down for more

Is Alpha Homora Becoming History?

Hasu believes that the concentrated liquidity in Uniswap v3 will make Alpha's leveraged liquidity mining obsolete, as users will be able to adjust larger or more concentrated liquidity price ranges to achieve leveraged yield.

However, Hasu also mentioned, "Alpha's leveraged liquidity mining, along with SushiSwap or Balancer, also functions similarly to V3's concentrated liquidity."

Uniswap Founder: Not That Dramatic

Hayden Adams believes that the launch of v3 will reduce the importance of Alpha Homora, but not to the extent of making it obsolete. He gives the following example where a user wishes to maximize yield within a certain range:

  • Trading Pair: DAI/USDC
  • Amount Invested: $1 million
  • Liquidity Price Range: 0.99 – 1.01 with a 0.02 range difference

There are two ways to increase yield:

  1. Concentrate the price range to 0.995 – 1.005 with a 0.01 range difference
  2. Invest more funds, borrow, leverage

He points out an interesting fact:

Assuming even if only 20% of the trading volume occurs in the 0.999 – 1.001 0.002 price range, the yield is still better than providing liquidity in the 0.995 – 1.005 0.01 range, with a difference in capital efficiency of 400 times versus 2000 times.

Adams further explains, "The potential yield in the 0.999 – 1.000 or 1.000 – 1.001 price range may be better if 10% of the trading volume occurs in this range, also based on capital efficiency reasons."

The release of Uniswap v3 has caused quite a stir. As early as April last year, Adams pointed out, "Every week, new projects come out claiming they have solved impermanent loss." But the only visible solutions so far are:

  1. Providing liquidity for zero-price risk trading pairs such as stablecoins
  2. Setting price ranges
  3. Impermanent loss still exists

Evidently, Adams ultimately chose the second option, as he believes that providing liquidity means inevitably taking on a certain amount of risk, which can be hedged, insured, or transferred, but can never be eliminated.